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On the Question of Land Acquisition for Private Development: Lessons from the US, Indian, and China Subhash Ray University of Connecticut Working Paper 2014-32 November 2014 365 Fairfield Way, Unit 1063 Storrs, CT 06269-1063 Phone: (860) 486-3022 Fax: (860) 486-4463 http://www.econ.uconn.edu/ This working paper is indexed on RePEc, http://repec.org

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On the Question of Land Acquisition for Private Development:

Lessons from the US, Indian, and China

Subhash Ray University of Connecticut

Working Paper 2014-32

November 2014

365 Fairfield Way, Unit 1063

Storrs, CT 06269-1063

Phone: (860) 486-3022

Fax: (860) 486-4463

http://www.econ.uconn.edu/

This working paper is indexed on RePEc, http://repec.org

On the Question of Land Acquisition for Private Development:

Lessons from the US, India, and China1

Subhash C Ray, University of Connecticut

[email protected]

Abstract:

In most countries the government is empowered by the Constitution to acquire privately

owned land for public use on payment of fair compensation for the land acquired. For

infrastructure projects like a highway or a dam, the land acquired remains under public

ownership. In many cases, however, private land is often taken for industrialization or

even construction of commercial and residential real estate in the name of urban

redevelopment. In such cases, the acquired land is transferred to a private party. This

paper draws upon the parallel between different incidents of forcible acquisition of

private land in the US, India, and China. The cases of General Motors in Poletown near

Detroit, MI in the 1980s and the recent events relating to Tata Motors and the agricultural

land in Singur, West Bengal raise a number of questions about government taking of land

for private development. A brief review of the history of land acquisition through

Eminent Domain in the US serves as the background for a discussion of the different

important questions like the problem of strategic holdouts and fair compensation. The

essay also looks into the special problems of land acquisition in China.

JEL Classification: R14, R52

Keywords: Eminent Domain; Fifth Amendment; Strategic Holdout;

Fair compensation; Land Use Rights; Industrialization

1 This paper is based in part on my paper “Detroit theke Singur” (in Bengali) published in Desh Patrika in

2009. It also extends the earlier UCONN Working Paper 2010-09.

2

On the Question of Land Acquisition for Private Development:

Lessons from the US, India, and China

Subhash C Ray, University of Connecticut

[email protected]

Models of economic development and growth- ranging from the Lewis Model of

economic development in a labor surplus economy(1954) to the rigorously mathematical

neoclassical models in the tradition of Solow (1956) - focus exclusively on capital

formation as the primary source of economic growth and pay little attention to

availability of land. Yet, industry cannot be built on thin air and unless abundant land is

freely available for reclamation and settlement (as was the case in the US) setting up new

plants requires acquisition of land from present owners and transferring such land from

its present use. This is a particularly difficult problem in countries like India and China

where per capita availability of usable land is already low. Further, industrialization goes

hand in hand with urban development for housing and infrastructure and cities and towns

continuously encroach upon the nearby rural communities. In a well developed market

for land, voluntary transactions between the buyer and the seller on mutually agreeable

terms should facilitate transfer of land from agricultural or residential use to a different

industrial or commercial use. Unfortunately, however, when land is being acquired from

a large number of small landowners, if some individual owners decline to sell, the entire

deal will collapse because the plant or the real estate to be developed requires the

consolidated land without holes in between. This is a case where the government

intervention may be needed to make the entire project viable.

A different kind of public projects may require the government to forcefully acquire land

from unwilling owners. Construction of dams, highways, and other such projects fall in

this category. The fundamental difference is that such infrastructure projects are not in

the interest of any private commercial enterprise and typically remain in the public sector.

Construction of a hydro-electric power plant does require eviction of a large number of

people. The Three Gorges Dam in China or the Sardar Sarovar Dam in India are

examples of large scale infrastructure building that requires mass eviction. The morality

3

of making one group of people pay for the benefit of a different group of people (even

though beneficiaries may outnumber the evicted) may be debated. However, if non-

polluting technology of power generation is to be promoted, there are few alternatives.

Any reform hurts some people and helps others. The question in those cases is how the

adversely affected people are not only fairly and fully rehabilitated but also awarded a

share of the net benefit that accrues to the society.

This essay does not address the question of land acquisition for public use (either

directly, as in the case of a road, or indirectly, as in the case of a power plant). Instead,

the focus is entirely on government acquisition of land for private enterprises often

justified on the ground that it would generate local economic benefit for the population.

The rest of the paper unfolds as follows. The paper starts with a brief narration of the

recent experience of land acquisition for a small car project in Singur, West Bengal (that

ultimately failed due to political agitations) and a remarkably similar precedent involving

the General Motors in Poletown near Detroit, Michigan. This is followed by a broader

discussion of different instances of land acquisition through the exercise of the Eminent

Domain authority of local governments in the US starting from 1945 in Washington DC

all the way to the recent experience in New London, Connecticut. The next section

considers the question of land acquisition and fair compensation from an Indian

perspective. Finally, the special problems relating to farm land acquisition in China

(where there is no land ownership and only land use rights) are addressed. The paper

concludes with a summary of the lessons from the experiences in the three countries.

Tata Motors and Singur, West Bengal, India

After decades of presiding over the systematic decimation of manufacturing in what once

used to be one of the leading industrial states of India, Buddhadev Bhattacharya, the

Marxist Chief Minister of West Bengal woke up to his new found faith in industrial

reform and laid out the red carpet for Tata Motors to set up an automobile manufacturing

plant in the fertile paddy fields of Singur near Calcutta. Months earlier, the Tatas had hit

the headlines across the world announcing their plan to roll out in the near future their

newest model priced under $2500. The land in Singur was the preferred choice of the

auto manufacturer because of its railway and highway links as well as its proximity to the

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city of Calcutta. In an effort to sweeten the deal, the state government resorted to the

Indian version of the Eminent Domain law (the Land Acquisition Act) under which the

state would procure and assemble the land and make it available to the company at most

favorable terms. Incidentally, the government refused to publicly disclose the terms of the

deal. Agricultural land holdings in India are typically very small and the project involved

a large number of small land owners. What made the problem more complex was the fact

there were thousands of share tenants and landless laborers who would lose their

livelihood if the agricultural land is taken away. Not surprisingly, a large segment of the

landowners refused to sell. This, by itself, is nothing unusual. In virtually all cases of land

acquisition through the exercise of the Eminent Domain laws, the government faces

resistance from unwilling sellers. What was unique about the case of Singur was that it

immediately became a major political issue in the state. While there were many genuinely

idealistic supporters of the resistance movement, Mamata Banerjee, the firebrand leader

of the Trinamul Congress party seized on this opportunity to assail her arch enemy the

Marxist Chief Minister for high handedness and for cuddling up to Big Business in total

disregard for the interests of the rural poor. Political confrontations in India in general

(and in West Bengal in particular) easily escalate to widespread violence leading to loss

of human lives. Singur was no exception. Moreover, there were several incidents of

suicide by landowners and farm workers who could not deal with the prospect of losing

their livelihood. Supporters of the resistance group with ample help from the cadres of

Trinamul Congress (TMC) set up road blocks on the busy highway nearby paralyzing

road transportation. There were acts of vandalism at the factory site. The Marxist party

cadres with the help of the police engaged in rampant intimidation of the unwilling

landowners and the protesters. The situation worsened and posed a major law and order

problem. Meanwhile the Tatas were fast losing patience with the hostility from its

neighbors. Within months they abandoned the project at Singur and moved their

operations to the business friendly state of Gujarat.

The events in Singur followed earlier incidents of violence in Nandigram, another rural

community where forcible acquisition of agricultural land for the planned development of

a special economic zone had culminated into state police gunning down unarmed

villagers including women.

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Riding on the wave of popular discontent with the corrupt Marxist regime, Mamata

Banerjee defeated the Left Front led by CPI(M) in the elections for the state legislature

held in 2011 and ended their 34-year old control of the state government. One of the

electoral promises of Mamata Banerjee was restoration of farm land taken for the Tata

factory in Singur by the earlier previous government to the original owners. However,

even as of now, the acquired land remains a virtual wilderness with a fenced off

unfinished factory in the middle of what once was a fertile farm land. Putting Humpty

Dumpty together again has proven to be a goal beyond the reach of the present regime.

Public opinion in India on the question of acquisition of agricultural land for industrial

development is deeply polarized. Both the supporters and the opponents of exercising

Eminent Domain powers for land acquisition are quite vocal. Unfortunately, however,

given the highly politically charged environment of the state, people are driven to one

position or another on this question mainly by their political affiliation with one party or

another.

The sole objective of this paper is to raise a number of questions that one needs to

address before taking a position on the issue of land acquisition. The discussion in the

following pages is politically neutral and refrains from judging which side bears how

much responsibility for the violence in Singur.

General Motors and Poletown, Michigan, USA2

The year 1980 was especially difficult for the city of Detroit, MI in the automotive

heartland of the US. The unemployment rate exceeded 18%. In fact, most of the

traditional smokestack industries in the American Northeast and Midwest were mired in a

deep recession. Companies were lining up to leave the wasteland of the union-dominated

Snowbelt in search of greener pastures in the Sunbelt of the emerging South. In Detroit,

as in many other metro areas in the region, urban decay was evident in the deserted

factory buildings and other real estates in disrepair. The eroding tax base that resulted

from this economic slowdown, was taking a heavy toll on the fiscal coffers of the city

administration making it impossible to provide the level of public services like law

enforcement and education that the citizens have been used to in the past.

2 This narration draws heavily from Corsetti (2004).

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In the midst of all this appeared their own Prince Charming in the shape of General

Motors. They were looking out for land for expanding their production facilities for their

most prestigious model, Cadillac. Without additional land, they would have to move their

production elsewhere. On the other hand, if suitable land became available, they would

prefer to locate their expanded production facility in Detroit itself. This would create

6500 new jobs. Of course, there were conditions attached. They needed 500 acres of fully

assembled land close to the highway and railroad. Most important of all, should any

individual landowner refuse to sell, persuading and evicting the unwilling owner would

be the responsibility of the City and not of General Motors.

At this point in the narrative, the average reader in West Bengal may feel that they have

read all about this episode as it was unfolding in the local daily newspapers and have seen

live coverage of all this only recently on the local TV channels. Given the close similarity

between what happened in Singur near Calcutta and the experience of Detroit, this would

be a pardonable error. One may easily confuse Tata Motors in India with General Motors

in the US or mix up Durgapur Expressway near Singur with the Chrysler Expressway

(I-375) in Detroit.

Cinderella’s birthmother could never have refused a marriage proposal from the Royalty.

Nor could the city council miss such a golden opportunity. Search for land that meets

these specifications was launched in full swing immediately. It was decided before long

that the community of Poletown would fit the bill. Most of the residents of this lower

middle income working class neighborhood were either of Polish descent or African

American. The authorities chose this community as the preferred location to be offered to

General Motors.

There was, however, one roadblock standing in the way to such an easy solution to the

problem. Evacuating Poletown would require the eviction of the 3500 residents of that

neighborhood. About 1500 homes, 144 shops and businesses, 16 churches, a school, and

a hospital – nothing could remain. It would certainly be most unfortunate. But, what else

could be done? Some sacrifice becomes unavoidable for a worthy public cause!

Evacuation of Poletown turned out to be far from easy. Resistance by the residents soon

became national news keenly followed by people all over the country. A church became

7

the headquarters of the movement. Raplh Nadar, the well known activist for consumers’

rights, came to Poletown in support of the locals. The residents went to the Michigan

supreme court challenging their eviction. In the court, the Town argued that acquisition

of the land for the proposed Buick-Oldesmobile-Cadillac plant of General Motors will

help to address (at least partially) the unemployment problem contributing to regional

economic development and thus benefit the population overall. Hence, exercising the

government’s rights to acquire land under the Eminent Domain laws is perfectly

legitimate. Michigan Supreme Court concurred with the Town.

Armed with the court’s decision, the Town continued its evacuation campaign with

greater enthusiasm often resorting to arson and other means of intimidation by hired

agents. With much lower stakes in the resistance to start with, the tenants were the first to

move out. Even the home and other property owners also began to lose heart and started

leaving gradually. Towards the end, the Immaculate Conception Church was the lone

survivor remaining the last bastion of the resistance. But the superiors in the church

hierarchy decided to sell out and instructed the priest accordingly. In the very end a

dramatic raid by the police evicted the elderly priest and his few remaining parishioners

throwing them out in a mighty show of force. Next day, the church, and with it the last

vestige of what once used to be Poletown, was razed to the ground.

In the end, however, the Town closed its books deep in the red. Despite its victory against

the resistance committee in the state Supreme Court, in many cases the Town lost to

individual claimants on the question of the amount of compensation for the acquired

property. For example, it had to pay the owner of an oil depot 5 million dollars instead of

the 350 thousand dollars it had originally paid. The Town ended up paying 300 million

dollars in litigation costs, compensations paid to evicted owners, and consolidation and

preparation expenses on the land acquired for General Motors. As the buyer, the

automobile company paid only 800 thousand dollars for the land. Further, they were

granted partial tax relief for years to come.

Most regrettably, the 6500 new jobs that was the goal of the entire effort by the Town

never materialized. Even at its peak levels of production, General Motors never employed

more than 3000 people in the new plant.

8

Land Acquisition through the Eminent Domain Laws in the US: A brief history

The US is often viewed as the ultimate sanctuary of private property rights. It is often

argued that one person’ right to property would prevail over another person’s right to life

under US laws. Then, how could something like Poletown happen in this country? What

lies behind this is the Eminent Domain Law. In India the Land Acquisition Act under

which the state can condemn and acquire private land from unwilling owners is generally

regarded as an anachronistic leftover from the British colonial period. However, similar

laws under different names are actually in place in all countries in the present time.

The Fifth Amendment to the US constitution makes it illegal for the state to acquire

privately owned land for public use without paying due compensation to the owners.

Interestingly, nowhere does it explicitly mention that it is legal for the government to

acquire land for public use from unwilling private owners. But it is clear from the

warning about payment of fair compensation that it is, indeed, legal to do so. One needs

to be reminded in this context that in the post-war history of the US, Poletown was not

the first instance of exercising the Eminent Domain Law by government. Nor was it the

last. In litigations regarding such land acquisition different courts in different regions of

the country and in different years have ruled in different ways. Let’s look at some of the

important cases.

Many sections of Washington DC in 1945 were in a shocking state of urban decay. There

were areas with streets lined with dilapidated housing units without sanitation infested

with rats and other rodents and were completely unfit for human habitation. Facing a

grave threat of diseases spreading from these neighborhoods, the US Congress enacted a

law authorizing the City to condemn properties in many such localities for urban

redevelopment. Within one such area of urban blight earmarked for condemnation stood

a supermarket that was just as clean and functional as others in the rest of the city. The

owner objected to its demolition with the rest of the real estates in that area and went to

court where he argued that because the store did not pose any health hazard like other

buildings in the area, his store should be exempt from demolition. In this landmark case

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well known in the legal archives as Berman v. Parker3, the court ruled against the store

owner on the ground that the redevelopment project could not be carried out if his

property was allowed to remain its existing location. Therefore, even though the store

itself did not pose any public health hazard by itself, in the greater interest of the overall

project it had to be condemned like other buildings in the area involved. It should be

noted here that the developer of the new housing units was a private entity and the new

residents would also become private owners of the property.

Fast forward another two decades. In the 1960s nearly half of the land in Hawaii was

owned by only 72 families. These landlords engaged tenants to cultivate their land. In an

effort to bring their feudal monopoly to an end, the government decided to acquire their

land and redistribute it among smaller owner cultivators. Needless to say, the landlords

went to court. But the court4 ruled that although such land acquisition was not

specifically for public use, expropriating the landlords resulted in public benefit. Hence, it

constituted a legitimate use of the Eminent Domain law.

After many years of uninterrupted prevalence, land acquisition under Eminent Domain

received its first major setback in 2004. Again it was Detroit. Again it was the Michigan

Supreme Court5. This time, Wayne County in Michigan was trying to acquire 853 acres

of land adjacent to Detroit International Airport. The objective was to develop a modern

shopping mall and an office park in that area. The justification was the usual one – public

benefit from regional economic development. This time, however, the court sang a

different tune. The justices ruled categorically that acquiring land from one private party

for the profit of another private party was illegal and unconstitutional. This was true even

if such transactions yield any public benefit as a bye product because the primary

motivation remains the pecuniary benefits accruing to a private party. Moreover, the

court effectively reproached itself by recording that its earlier decision in the Poletown

case had been unjust.

3 US Supreme Court (1954) 4 US Supreme Court (1984) Hawaii v Midkiff 5 Michigan Supreme Court (2004) Wayne County v. Hathcock

10

As such, the court decision in the Wayne county litigation was not the last word on

Eminent Domain issues. Another major landmark was the famous Kelo v. New London

that started in the Superior Court in New London, CT and ultimately got decided in favor

of the City in the Supreme Court. In this case, as in most others motivated by regional

economic development, the city wanted to acquire a number of private homes and land

parcels in the Fort Trumbull area adjacent to the Thames River for the purpose of

developing shopping malls, office buildings, and upscale condominiums. Once a vibrant

and thriving metropolis, New London suffered a reversal of fortune through a prolonged

period of economic downturn. By the 1990s, it was officially declared to be a depressed

region. On top of this, in 1996 the US Department of the Navy closed down its

Submarine Training Center located in the Fort Trumbull area leading to loss of another

1500 jobs. This further aggravated the economic crisis in the region. By 1998, years of

unemployment and poverty had lowered the population of the city to only 24,000. The

city government was now desperate to do something that would stop the drain. It was in

such a grave situation that the New London Development Council was formed. A project

to develop a state park in Fort Trumbull was launched with a budget of 10 million

dollars.

In February Pfizer, the pharmaceutical giant, announced its plans to build a 300 million

dollar research center in the Fort Trumbull area. The town council became optimistic that

other major companies might follow the lead of Pfizer and locate their business in this

area. Getting the nod from the town, New London Development Council charged ahead

with new zeal.

The Fort Trumbull area in the city of New London juts into the Thames river like a

peninsula. At that time it contained 155 homes besides the 32 acre property where the

recently closed Submarine Training Center of the US Navy was located. In the Master

plan for redevelopment, the whole area was divided into 7 sectors. One sector adjacent to

the river had provisions for a boardwalk along the river, parks, restaurants, and souvenir

shops for tourists. Another was earmarked for luxury condominiums. Others were

designed for shopping malls, office and technology parks, and parking lots. The land

acquisition campaign started in full swing. Most of the targeted 90 acres of land was

acquired without much difficulty. But 9 families owning 15 homes and parcels of land in

11

this area confronted the Goliath trying to evict them from their homes. Among them were

Susette Kelo and Wilhelmina Dery.

Susette had been living in her home in Fort Trumbull since 1997 and had spent a

considerable sum on home improvements. She was very attached to her home, the

adjacent garden, and loved their proximity to the river. At no price would she like to give

her home up. Wilhemina was born years ago in the same home and had been living with

her husband Charles with whom she was married 60 years back. All her life’s memories

were there within the confines of her house. Selling her home would be like selling off

her entire past!

Failing to reach any agreement with these unwilling homeowners, the Development

Council (effectively, the town) tried to evict them by invoking the Eminent Domain law.

It should be noted here that these homes were not blighted or otherwise condemnable.

Nor was there any reason to suspect that the owners were holding out hoping to get a

better deal on their homes.

With no other options left, Susette and her fellow homeowners went to court. In the law

suit filed against the town at New London superior court in 2000, they argued that the

town was seeking to acquire their homes with the sole objective of developing

commercial and residential property to be sold to other private parties. The Fifth

Amendment permits exercise of Eminent Domain for acquiring private homes and land

only for public use. Their homes were not being acquired for public use. Hence, evicting

them from their homes was unconstitutional. It is worth noting that even as the litigation

was in progress, the town was negotiating with Corcoran Jennison, a private real estate

developer, over a 99 year lease of the property for an annual rental of $1.Of course, no

final deal had yet been signed.

After 7 days of hearing, the court ruled in favor of the homeowners in respect of 12 out of

the 15 parcels under litigation. Even though the verdict was favorable overall, the

homeowners appealed to Connecticut High court against the negative ruling regarding the

remaining 3 properties. On its part, the town naturally went to the High court.

Surprisingly, this time the wheel turned in exactly the opposite direction and the ruling

was against the homeowners in respect of all of the 15 parcels. The judges argued that the

Development Council had legal rights to acquire all of those properties for the sake of

12

economic development. In their judgment, the redevelopment plan had not been drafted

specifically for the benefit of Pfizer or the developer. Because the main objective was

regional economic development, such acquisition was for public benefit even though not

explicitly for public use like building a highway or a post office. Therefore, eviction of

the unwilling homeowners on payment of fair compensation was by no means

unconstitutional.

Hoping for an ultimate vindication, Susette and her fellow plaintiffs went to the US

Supreme Court as their last resort. In the court they argued that while it was true that

there will be jobs created due to economic development leading to public benefit, the

main beneficiaries would be specific companies and individuals. Any benefit accruing to

the population in general was a minor bye product of the project. The new owners of the

acquired land would be under no legal obligation whatsoever to make it available for use

by the public. For this reason, the court should declare the practice of acquiring private

land for economic development as illegal.

The 2005 decision in the famous Kelo v. New London case at the US Supreme Court6 also

went against the homeowners albeit by the majority of only one vote. Voting in favor of

the Development Council were Justices Steven, Souter, Breyer, Kennedy, and Ginsburg.

Dissenting with the majority opinion were Justices O’Connor, Scalia, Rehnquist, and

Thomas.

Those in favor argued that numerous courts of law in different places and at different

times have upheld the decision to evict unwilling landowners through the exercise of

Eminent Domain powers for economic development has been considered. It is apparent,

therefore, that the legal system of the country does not regard this practice as

unconstitutional. The evicted homeowners are always the victims in some form or other.

The Court is definitely under obligation to ensure that the evicted owners are fairly

compensated for their property. But both the right and the responsibility to decide how

exactly an urban development plan should be implemented in any specific context rests

with elected popular representative and not with the Court. The only obligation of the

Court is to ensure that land is not acquired for the sole benefit of a specific person or

institution. It has already been determined at the State Supreme Court of Connecticut that

6 U.S. Supreme Court Kelo v New London (2005)

13

the development plan in New London had not been designed for the benefit of any

particular business entity. The Supreme Court, therefore, has nothing else to add.

Condemnation of these properties will ultimately lead to jobs for a large number of

people. Therefore, evicting the owners has been a legitimate exercise of the Eminent

Domain law by the local government.

The dissenting Justices argued that every time a new business is started somebody gets a

job and tax collection goes up. It would, therefore, be possible to acquire any piece of

private real estate in the name of economic development. This, effectively puts a citizen’

fundamental right to own property at risk!

Unfortunately the dissenting votes brought no redress to Susette and the other

homeowners because the majority opinion in the Supreme Court decision drew the final

curtain on their valiant fight. However, the debate goes on even though this particular

case was closed. Efforts are under way in many states to enact laws restricting land

acquisition through Eminent Domain laws.

Kelo’s Revenge?

In an ironic turn of events, in 2009 Pfizer decided to move its R&D operations from New

London, CT to a nearby facility in Groton, CT leaving the homes and land acquired by

the city government through the exercise of the Eminent Domain Rights a wasteland.

As Patrick McGeehan reported in NewYork Times (Nov 12, 2009)

“Pfizer said it would pull 1,400 jobs out of New London within two years and move most

of them a few miles away to a campus it owns in Groton, Conn., as a cost-cutting

measure. It would leave behind the city’s biggest office complex and an adjacent swath

of barren land that was cleared of dozens of homes to make room for a hotel, stores and

condominiums that were never built.

The announcement stirred up resentment and bitterness among some local residents. They

see Pfizer as a corporate carpetbagger that took public money, in the form of big tax

breaks, and now wants to run”.

An Indian Perspective on Land Acquisition for Private Development

Generally, the central government or the state governments resort to “taking” of private

land from unwilling owners for one of two objectives: for public use or for public benefit.

14

When private land is taken for the construction of a post office, a railroad, or a highway,

the infrastructure remains available for use by the public (sometimes at a cost as in the

case of a railroad or a toll road). In some other cases, the acquired land is not directly

available for public use. This happens when private land is taken for the construction of

an irrigation project, a dam for flood control, a hydro-electric power plant for electric

supply, or even the construction of a steel plant in the public sector. But the beneficiaries

of these projects are all people and not selected individuals. These are examples of taking

for public benefit even though not for public use. Moreover, in both types of takings, the

land taken and the construction on such land remains under public ownership.

There can always be difference of opinion regarding exactly where a dam or a public

sector steel plant should be located. In the 1950s, under the First Five Year Plan, the dam

on the Damodar river and the hydro-power plant were built by the Damodar Valley

Corporation (a semi-autonomous government enterprise) in the Maithon-Panchet area in

the state of West Bengal. This caused the immersion of a large land mass in that

particular area evicting landowners in the affected region. One may reasonably argue that

building the same project at a different location in what was then the state of Bihar would

have been a better decision. In some cases, whether a dam should be constructed at all

may remain a controversial issue. On the question of building the Sardar Sarovar Dam on

Narmada rive in Gujarat, Narendra Modi (then the Chief Minister of the state) and

environmental activists like Medha Patekar and Arundhuti Roy (the famous author who

won the Booker Prize for her novel The God of Small Things) hold diametrically opposite

views. Which side is right on this question is still being debated. But everybody concedes

that if a dam has to be built at all, people in that area will necessarily be evicted. In the

interest of national economic development, building some infrastructure projects like

dams and highways will be unavoidable. In such cases, unwilling property owners have

to be evicted through the exercise of the Eminent Domain laws. In all such cases, the

priority should be on the proper relocation of the displaced owners and fair compensation

for the property taken. None of the few cases of taking land in the US that were discussed

in the previous section pertained to construction of infrastructures. But even in the US (as

in all other countries) there have been instances of taking land for building highways,

dams, or airports.

15

Sometimes the acquired land does not remain under public ownership but is transferred to

a new private owner. But even in those cases, the sole objective of taking is public

benefit. A prime example of such taking in the US is the Berman v. Parker example in

Washington D.C. described above. In that instance, the newly constructed housing units

that replaced the dilapidated rows of unhygienic houses became the personal properties of

the new occupants. As already noted, this condemnation led to the demolition of a

supermarket that posed no health hazard. But, because the entire project was undertaken

to protect the population from the threat of a potential epidemic spreading from those old

rundown houses, taking the supermarket was a legitimate (though unfortunate) collateral

damage that was unavoidable. Similarly, in the Hawaiian case, land appropriate from the

big landlords was redistributed to new owners. This was clearly an example of taking

property from one private owner and handing it over to another private owner. But, here

again, the objective was to effect a more equitable distribution of land by breaking the

feudal monopoly of the latifundia. Personal gains accruing to the newly settled owners

were incidental. Hence, the taking was justified.

In most cases, however, land is taken from private owners in the name of regional

economic development. In such instances, the rationale for exercising Eminent Domain

powers is by no means obvious. In Poletown, land was taken for General Motors. In

Singur, land was taken for Tata Motors so that they would build their the automobile

plant for manufacturing their new model, Nano, in the industrially depressed state of

West Bengal. It goes without saying that the new General Motors plant in Michigan or

the Tata Motors plant in Singur would create jobs. But the main benefit of the land

acquisition in both cases would go to the auto manufacturer. Then why should not the

automaker purchase the land at fair market price from the owners through direct

negotiation? After all, when the plant is built (no matter how the land is acquired), jobs

would be created anyway! Why should then the state or the local government act like a

real estate agent for the buyer? On the face of it, the question seems to be a simple one.

But there are more complex issues in the background. In such cases, one cannot buy land

like buying livestock in the country fair.

Economics and Law experts have given this problem considerable attention. In many

cases, it so happens that the price offered by the buyer is more than the minimum amount

16

of money that the owner would be willing to accept for his land if he knew that it was a

‘take-it-or-leave-it’ final offer. But he may still refuse to sell hoping for an even higher

offer from the buyer. This kind of stalling tactic and refusal to sell expecting a better

price is often described as strategic hold out. This can become a serious problem when a

well known company seeks to assemble a large number of small properties from many

different owners. The owner of a factory does not negotiate with each individual worker

about the wage rate. Typically, the labor union bargains as the collective voice of all

workers. Once a wage agreement is reached, who ever agrees to work for this employer

accepts this wage rate. Anyone who finds the wage unacceptable refuses to work for this

firm. In the case of purchasing land, however, there is no representative body speaking

for all the property owners and the buyer has to negotiate with each owner individually.

This can entail enormous cost in terms of time and money. If the government acts as an

intermediary, transaction costs for such land purchases can be minimized. But it would

not be enough for the government to simply to reach an agreement on what the fair price

(per acre of land) should be. It has to persuade any unwilling owner to sell his land. The

fundamental difference between labor and land as inputs in this situation is that if own

worker refuses employment, the firm can get a replacement and does not need to close its

factory down. But, if the owner of a plot of land located critically at the center of the

planned factory site refuses, the whole project may have to be jettisoned. If most owners

have already sold or are ready to sell, the government may be forced to take coercive

measures in order to evict the remaining hold outs. This is often cited as the main

argument in favor of ‘taking’ by the government.

There is another and an even more serious problem. As more and more properties get

sold, the importance of the remaining properties for the viability of the project continues

to increase. Suppose 87 of the 100 properties involved have already been sold. By this

time, the remaining 13 owners fully realize that their land is enormously more valuable to

the buyer than before. Having already spent a fortune on those 87 parcels of land, the

buyer would not be ready to jeopardize the entire project for the remaining 13. Naturally,

they keep delaying in the hope of a large gain. The only way such strategic holdout

problem can be resolved is by evicting the remaining owners.

17

Those who oppose the use of Eminent Domain for commercial development point out

that there is a way to use the market to assemble land without resorting to eviction by

law. Land owners have an incentive to hold out strategically only when they know that

the buyer is a big company with deep pockets. One way out of this would be for the

buyer to employ agents (like smaller local property dealers) to buy and assemble the land

on its behalf7. If the buyer remains in the background and the seller does not know that he

is ultimately selling his land to the big buyer like General Motors in the US or Tata

Motors in India, he would be more willing to sell out when the price offered is acceptable

to him. One may argue that this line of reasoning is only theoretical and cannot actually

work in real life. It should be pointed out to them that Harvard University and Disney

World did acquire and assemble thousands of acres of land through buying agents

without disclosing their own identities as buyers. Again, it may be argued that what was

feasible for a large and savvy organization like Harvard or Disney, may not be so for

another smaller organization. But here again counter examples can be cited. In Las

Vegas, a smaller development company used this method to buy a large number of small

properties (none greater than 5 acres) and assembled them into a 2400 acre commercial

district. In another instance, a developer assembled 11 parcels of land to construct a 1400

square shopping mall with space for 160 retail outlets in Providence, Rhode Island.

Similarly, in West Palm Beach, two developers used 20 separate buying agents to 300

parcels of land from 240 different owners and developed a 26 block subdivision

consisting of offices and shops.

There is ample evidence that it is possible, indeed, to acquire and assemble large tracts of

land without involving the government. It is, therefore, not fair to use state authority to

evict individuals from their homes for the profit of other private interests. A market

transaction free of coercion by state or local government should is desirable.

Another important question naturally arises in this context. Irrespective of how the

property is acquired (i.e., by government taking or market deal), how should the fair

compensation for the property be determined? One may argue that a fair price would be

the average value of similar properties sold in the area in the recent past. This, however,

is not the case.

7 The discussion here draws extensively from Kelly.(2003).

18

Consider the following scenario. Suppose that the underground railway network know as

Metro Rail in Calcutta is being expanded and a subway station is to be built in a new

locality. Both A and B are homeowners in the targeted area. Their homes are quite similar

and would fetch the same market price at this moment. But one of the two homes needs

to be demolished for the construction of the station. Metro Rail is really indifferent

between the two properties – either of the two homes would be a suitable location.

Suppose A’s home was taken for demolition and based on the market valuation of

comparable properties, he was to be paid Rs.700,000 in compensation. This was, indeed,

a fair valuation prior to the extension of the Metro Rail. The moment the neighborhood

gets connected by the underground railway network, home values sky rocketed in that

locality. Now the market value of B’s property (the home not taken) jumps to Rs.1.2 or

Rs.1.8 million. Had A’s home been spared and the other property been taken, A would

have received a windfall gain exactly the way B does now. Hence, the fair compensation

payable to A should include a share of the anticipated increase in property values of

which he is deprived because he was the unfortunate victim of the taking. What should

constitute a fair compensation should be determined in light of the projected increase in

home values. But the important point is that the displaced homeowner should have a

share in the economic gains due to the development.

Finally, another point needs serious attention. In Poletown, General Motors had promised

6500 new jobs. In Singur, the Tatas may also have promised the creation of thousands of

new jobs. Enticed by such promises, the city government in Detroit and or the state

government in West Bengal went full steam to acquire the land for the companies. But

where is the guarantee that the companies will actually deliver on these promises of

creating these jobs? In reality, there cannot be a binding contract between a company and

the government about the number of jobs to be created. Nor should there be one. The

corporate management is accountable only to its shareholders. The actual number of

workers employed would depend on the demand conditions in the automobile market,

prices of energy and raw materials (like steel), variations in the wage rate, and a host of

other factors. The promise of 6,000 or 10,000 new jobs is only a projection that needs to

be revised in response to changes in economic conditions. Addressing the unemployment

problem in the city or the state is not the responsibility of the company. It is the

19

responsibility of the elected government. Of course, the government can offer special tax

and other concessions to attract new business. But only those concessions and facilities

should be extended which can be easily terminated if the company does not live up to its

promise. In that case, the company will try to deliver on its promise out of its own self

interest. If the company decides to fold and move away, another company make be

courted with similar concessions. When real estate is made available to them at a heavily

subsidized price, a company has much less at stake and can move out without suffering a

great loss (exactly as Tata Motors did in Singur). But if it has to pay market rates for the

land, it would be much more costly for the company to move out.

Land Questions in the People’s Republic of China: 90 years Later

In November 1928 Mao wrote his famous Report on the Struggle in The Chingkang

Mountains in which he divided the agricultural population into three classes by land

ownership: (a) the class of big and middle landlords, (b) the intermediate class of small

landlords and rich peasants, and (c) the class of middle and poor peasants. After the

Communist Party came to power in 1948 (and even before the Revolution in the Red area

held by the revolutionaries) a massive land reform was implemented in the vast

countryside of China. All land previously owned by the big (and typically absentee)

landlords described as the Evil Gentry and a portion of land held by small landlords and

rich peasants was confiscated and redistributed to small peasants and landless workers.

The Party encouraged farmers to form Mutual Aid Teams that made it possible for the

poor peasants to use farm animals owned by the more affluent farmers in exchange of

labor provided to them during the harvesting season. Membership of such Mutual Aid

Teams was entirely voluntary. After the Revolution, several Mutual Aid Teams in a

region were combined to form a Primary Agricultural Producer’s Cooperatives. However,

participating families still owned their land and farm animals and had the right to opt out.

At the next phase of the reforms, these Primary Agricultural Producer’s Cooperatives

were transformed into Advanced Agricultural Producer’s Cooperatives where ownership

of land and animals was transferred form the participating families to the Cooperative

itself without an option for a member family to stay out of these Cooperatives.

20

Subsequently, the Advanced Cooperatives were organized as Communes wielding

political power at the local level. Thus collective farming replaced family farming and by

1958 private ownership of land ended in China. As obligatory members of a Commune

the farmers worked on the collective farm but had no say on what crops were to be

produced, where the output would be sold, and how much of the revenue would be

awarded to the members. Decision making was entirely in the hands of the Party

bureaucracy.

Introduced on an experimental basis as a part of the post-Mao economic reforms, the

Household Responsibility System (HRS) permitted farming households to cultivate small

plots of land where they could decide what crops to raise and could retain the surplus

after paying the due levies. Encouraged by the success of the HRS, the government

institutionalized this nation-wide. Even though land ownership was retained by the

collective, farmers were given land use right to a plot of land for 15 years. Subsequently

the revised Land Management Act (LMA) of 1998 extended such land use right to a

period of 30 years. Also, land use rights became transferable and reallocation of land use

rights was permitted if supported by two thirds of the members of a collective. In 2003

the Rural Land Contract Law (RLCL) provided further details on the rights and duties

concerning household land use rights. In particular, it imposed strict restrictions on land

reallocation by the village collective in its capacity as the formal owner of the land.

All this would suggest that even though the land is formally owned by the collective, a

farmer’s rights are ensured (at least for the 30-year term).

Why, then, is there so much social turmoil and political unrest all across China against

land grabbing?

Between the Idea …

Between 1990 and 2002, 66.3 million Chinese farmers are reported to have lost their

land. Many displaced farmers have voiced their anger about eviction through public

demonstrations. The massive scale of this problem can be judged by the fact that there

were 85,000 public demonstrations involving more than 3 million people just in the year

2005! The Chinese government is visibly concerned about this widespread discontent all

across the country and has given a high priority to the question of illegal and arbitrary

land acquisition. In fact, Premier Wen Jiabo grimly cautioned that the farmland seizure

21

problem was fomenting social unrest and the Party “can’t commit an historic error over

land problems”. It is an irony of history that the Chinese Communist Party that won

political power by fighting for the poor and landless farmers and redistributed land from

the rich to the poor has now to worry about how to protect the poor farmers being

expropriated by a newly emerging class of entrepreneurs and bureaucrats at lower levels

of government.

In the pre-reform era, all agricultural land was owned by Collectives and non-agricultural

land was under state ownership. When urban development called for more land,

municipal governments would acquire such land by a transfer from the collective to state

ownership. However, such acquisition would result in displacement of farmers cultivating

the relevant tracts of land. Because there was no land market, evicted peasants were

compensated with a package that included job offers allowing them to work on the new

state-owned enterprise established on that land, a resettlement fee, and a hukou (an urban

residency permit) which entitled a migrant from the rural areas to settle in a town and

enjoy the benefits of healthcare, access to local public goods (like schools) and crops at

subsidized prices, and retirement benefits enjoyed by city residents8. Overall, a hukou

rather than any cash compensation made this quite an attractive prospect for the displaced

farmer.

Under the Household Responsibility System, farmers were assigned land use rights

initially for a period of 15 years (extended subsequently to 30 years).They were free to

make their crop choice and were allowed to retain all income from farming once they met

their “responsibilities” of quota or taxes to the collective every year in the form of grain

or cash. Now the farmer had a bigger stake in the land he cultivated and insecurity of land

use rights soon became a major cause of social unrest in rural China.

The root cause of the problem was that although in principle a farmer had the land use

right on the land he cultivated for a specified number of years, in reality the Village

Collective engaged in periodic redistribution of land for a variety of reasons. A

distinction is made between a ‘big’ and a ‘small’ redistribution. In a ‘big’ redistribution

all land was taken from the families and redistributed typically after farm land was

8 Ding (2003, 2007)

22

acquired for industrial use and the total remaining agricultural land was reduced. In a

‘small’ redistribution land was taken from only a few families and most other families

were unaffected. A ‘small’ redistribution could occur either due to demographic changes

in individual family sizes (due to birth, death or marriage) or for a local construction

project (like building a school or a temple). In many cases, there is very little

participation by the villagers in the decision making process of land redistribution and at

times a handful of powerful cadres make redistribution decisions simply to demonstrate

their political power. Article 14 of the Land Management Law of 1998 clearly states that

within the duration of the contract for operation of land, any appropriate readjustment of

the land between isolated households shall be made with the agreement of at least two-

thirds of the members of the village assembly and submitted to the township government

and the agricultural administration department of the county for approval. This restriction

on land readjustment was reiterated in Article 27 of the Rural Land Contracting Law of

2002.

Thus, by all accounts, the farmer’s right to land seems to have become more and more

secure through the recent legislations. Why then is the Chinese countryside threatening to

become a volcano of simmering discontent?

… and the reality, falls the shadow

There are several factors within the legal-institutional structure that have fostered the

land-grab campaign by a coalition of developers and local government bureaucrats in

China.

In the first place, all non-agricultural land is state-owned and any urban industrial or

commercial development can take place only on land that is already under direct state-

ownership or agricultural land acquired from the collectives. This has endowed the state

(township) governments with an immense monopoly power in the market for urban land

use rights9. The fact is that when agricultural land is taken, the directly affected people

are the farmers who are being evicted. But they have little (if any) input in such land

acquisition decision.

9 Compensation for acquired of urban properties on land covered by a city plan is determined under the

Urban Buildings Demolition Relocation Administration regulations (UBDRAR) 2001. For a brief

discussion of compensation for urban properties see Chan (2003)

23

In some cases, the problem is further complicated by the fact that there is considerable

ambiguity about which particular government body holds the ownership right over the

land under consideration10. During the collectivist regime, Chinese agriculture was

organized hierarchically as the commune divided into several production brigades and

each production brigade sub-divided into a number of production teams. In the post-

reform years, the town/township generally corresponds to the former commune, an

administrative village is the equivalent of a production brigade, and a natural village or

the villager’s group to a production team. While it is categorically recognized that the

village farmers’ collective has the managerial and administrative rights over the land the

farmers cultivate, it does not have the right to directly transfer such land use right to an

urban developer despite being the notional owners of such land. At times, the town

government has been able to take advantage of this ambiguity to make profits from

village land it does not legally own.

By far the most critical feature of all land use legislation is the provision that agricultural

land may be acquired for public interest. This has enabled local governments to acquire

land not only for infrastructure projects like roads, railway, and dam construction but also

for commercial industries and even private real estate development. There is no denying

the fact that the spectacular rate of growth in China’s manufacturing has created

enormous economic benefit for the country as a whole. Side by side with

industrialization, the nation has experienced urbanization at rapid rate. Shenzhen was a

small village of 3 square kilometers in 1979. By 1999 it had grown into a city covering an

area of more than 140 square kilometers. The built up area in Yantai city in Shandong

province expanded from 120 to 340 square kilometers within a 3 year period (2001 to

2004)11. Needless to say, such geographical expansion of urban areas took place at the

cost of agricultural land in the peri-urban villages.

What motivates the local government officials to facilitate transfer of farm land to urban

development is the immense gap between the value of agricultural land based on

agricultural output and the value of land used for construction based on the real estate

market. In the village of Licun in Yunnan province the leaders got rich by acquiring farm

10 Ho (2001) 11 Ding (2007)

24

land for 12,000 RMB per mu (approximately $12,000 per acre) and then leasing it as

construction land for 80,000-90,000 RMB per mu. In Fujian province a local government

paid 10,000 RMB per mu to farmers and then leased out the land to developers for

200,000 RMB per mu (and even up to 750,000 RMB per mu in some cases). In Hangzhou

province the farmers were paid 160,000 RMB but the land was sold for 2-4 million RMB

per mu.

While some corrupt politicians and bureaucrats at the local levels have made personal

gains from such land deals, the main beneficiaries have been the local governments

because such grab-and-sell activities have provided them with a rich source of revenue in

the face of mounting debts. As the central government shifted the burden of providing

urban public services to state governments, budgetary pressures increased enormously at

these lower levels of administration. Local governments have tried to cope with such

budgetary pressure by raising revenue through land use conveyance fees received from

public land use deals. In the city of Hangzhou, for example, land conveyance fees

amounted to 20% of the total receipts of the municipal government in 2002.

But in all cases the surplus comes largely from the extremely low price paid for the farm

land acquired based on the original use of the land in farming without any relation to how

much it is worth subsequently as construction land.

The fundamental problem is that there is no market for agricultural land in China because

transactions in land rights have remained forbidden since 1949. The guiding principle of

fair and just compensation in case of farm land acquisition has been merely to ensure that

the evicted farmer is not left any worse off. But there is no clear definition of what

constitutes non-worse-off standard of living. Without any market prices to provide

guidance land values are determined by the annual yield. Such valuation of land, in its

turn, determines the amount of compensation payable and an estimate of the minimum

income security that the repossessed land would have provided to the evicted farmer. The

Land management Act provides for a standard compensation of 6-10 times the average

annual output value from the three preceding years and a resettlement fee of 4-6 times the

average output. The combined compensation would not exceed 15 times the annual

output (or 30 times the output when approved by provincial authorities). This many not

sound too unfair except for several reasons. Even after years of reforms the local

25

governments exercise substantial control over what to grow on farmlands. Also, rigid

price control and market disequilibrium keep agricultural prices artificially low. Such

undervaluation of agricultural output, in its turn, lowers the amount of compensation

payable.

The law permits application of different standards and levels of compensation for land

acquired for major projects of national interest like highways and power plants. Local

governments typically exploit this legal provision to under compensate for land taken for

such projects. This raises a question of horizontal fairness and only fuels further

discontent among farmers. For example, farmers in the suburbs of Bingjiang district of

Hangzhou city received 23,000 RMB per mu for the land taken for a segment of the

highway from Hangzhou to Ningbo. In other commercial projects land compensation

paid was in the range of 200,000 – 300,000 per mu. Apart from horizontal fairness,

compensation should also meet the criterion of vertical fairness and take into account

inflation that erodes the purchasing power of payment received which may be inadequate

even at existing prices as the uprooted farmers face higher living costs in an urban area.

The overwhelming evidence is that most of the conflicts about land acquisition in China

are caused by dissatisfaction with the amount of compensation. The local governments

are balancing their budgets on the back on one of the weakest sections of the population

in the Peoples’ Republic and unless appropriate steps are taken the tear in the social

fabric may be beyond repair.

The way forward in China

In principle, farmers potentially affected by land acquisition have a right to be notified

about the proposed repossession of land and to voice their opinion on the compensation

offered through political and legal channels. As repeatedly noted above, land

redistribution requires consent of at least two-thirds of the members of the village

council. That would be applicable both for redistribution within the village as well as

transfer of land for urban development. In fact, in a majority of the cases, villagers are

aware of their legal rights. But its actual implementation presents a completely different

picture. In some extreme cases like in the village of Licun in Yunnan province the village

leadership simply order the villagers to buy certain seeds and grow certain crops which

26

are then sold collectively to some export company without any involvement by the

farmers even though they hold land use rights and legally own the crops they raise12.As

reported above, the villagers were robbed outright through illegal land deals conducted in

the name of the village council but did not find it worthwhile to contest because the same

local elite families have controlled the village for years, manipulate elections to the

village council, and, above all, enjoy the protection of the government officials at higher

levels. In other parts of the country, even though the situation may be somewhat better,

villagers cannot afford to engage a lawyer to represent them in the Court. Also, lawyers

are reluctant to take a case opposing the local government. Even in the rare cases where

the court decides in favor of the farmers, the land is not automatically return to them.

Villagers are more often than not forced to reach an out-of-court settlement with the local

government trying reach a better compensation package as the best feasible solution of

the problem. Another popular method of expressing grievance against the local

government is to directly petition to a higher authority. In fact, various government

departments in China maintain specialized bureaus with service counters to receive

petitions from citizens. In Beijing in 2003 there were 3984 court cases related to real

estates. By contrast, during the first half of 2004 the Ministry of Construction had

received 18,620 petitions13. However, in other areas individuals organizing petition

drives are often intimidated and arrested on false charges to dissuade them from such

activities.

Ultimately relief from illegal and arbitrary land expropriation would require making the

local governments more accountable to the citizens at the grassroots and at the same time

subjecting them to a greater degree of control from the higher levels of government. As

things stand, the local governments function as rogue elements within the overall political

hierarchy in China and the perception that the Politbureau of Chinese Communist Party

controls all layers of government all the way down to the village does not correspond to

the reality.

By far the most important reform needed is in the amount of compensation payable for

the land acquired. Under the present rules the local governments pay a minimal amount

12 Van Rooji (2007) page 216. 13 Van Rooji (2007) p 227.

27

stipulated under law for the farm land they acquire while the real estate conveyance fees

they charge from developers is driven by the market forces for urban land. This has

proven to be a goldmine for them to extract revenues from as they please.

The market forces of demand and supply drive the land conveyance fee that a local

government can charge from a developer. A similar market for rural land can be

developed by permitting transfer of land use rights directly between users. This will allow

the land to be put to its most productive use. At the same time, the ‘price’ will reflect the

relative scarcity of farm land in a specific region. If the acquiring local government has to

pay a compensation for acquired land in competition with other potential bidders the

prices of rural land will be better aligned with its price in urban use.

While a more rational compensation for acquired land alongside a more strictly enforced

policy on acquisition will serve to protect the farmers from exploitation by local

government officials, that will not be enough to successfully rehabilitate the evicted

farmer in a new urban setting.

Most of these farmers, especially the older and less educated ones, will lack the skills

necessary to secure gainful employment outside agriculture. This implies that they are

unlikely to enjoy a stream of income that will enable them to maintain their earlier

standard of living. Moreover, they are unlikely to have the ability to invest any lump sum

payment received in exchange of land wisely to yield future incomes. It would serve

them better if the compensation is made in the form of a stream of payments over years.

Also to induce them to acquire marketable skills, future payments may be made

conditional on job training. The expropriated farmers need to be provided with urban

housing and have to be integrated into the urban government’s social security scheme.

Under a present arrangement the government requires that some of the land grant fee

received by the evicted farmer to be reserved for building expropriated farmers’ social

security fund and the rest comes from a national fund14. But the pension fund is grossly

inadequate to serve them in their old age. China’s high rate of growth in manufacturing

has been supported by a form of ‘primitive capital accumulation” extracting the surplus

from agriculture. Social justice warrants that there should be some form of payback and

14 Zhang and Lu (2011)

28

helping to create a solvent pension fund for these evicted farmers would be an

appropriate step in that direction.

Lessons from the Three Countries

Problems of land acquisition in the US, India, and China are unique in their own ways.

The US with clearly defined property rights is one extreme while China with no private

ownership of land is the other extreme. India represents an interesting case where even

though the landlord has clear title to the land, the share tenant has secure tenancy right to

cultivate the land as a tenant but has no say in the land transaction. But the worst off are

the landless laborers who lose their livelihood as the agricultural land is acquired for

industry or some other kind of urban development.

Taking of private property in the US mostly involves residential or pre-existing

commercial property for urban redevelopment. The case of New London is a classic

example. While strategic hold out for a better price is definitely a possibility, often the

unwilling seller holds out for personal reasons. While the exercise of the Eminent

Domain powers to acquire land for public use may be justifiable in the interest of greater

social welfare at the cost of individual welfare, the Pfizer case in New London illustrates

the danger of land acquisition in the name of public interest where the private beneficiary

of such land taking cannot be forced to deliver on the promise of economic benefit to the

community that prompted such land acquisition.

In emerging economies like India and China urban expansion at the expense of rural

communities is inevitable. The role of the government should be to ensure that the

farmers losing their land along with the large number of share tenants and farm workers

are fully compensated and rehabilitated in a non-agricultural occupation.

Let me clarify one thing in conclusion. This essay is about government acquisition of

land for economic development. Passing judgment on the incidents at Singur (or similar

incidents in Nandigram), New London, or Kunming is not the objective. As an

economist, I have tried to raise and discuss the pertinent issues with the hope that the

reader will form his own opinion having considered all sides of the problem.

29

I personally feel that for the overall benefit of the society, land or factories should be

utilized in that line of production where its productivity is the highest. I am not ready to

take the vow that agricultural land should never be transferred to industrial use.

There are people who believe that while farming cannot be done unless the land is

suitable for cultivation, industry can be located anywhere in the state. This is a false

perception. One needs adequate transportation facility, literate workers, and uninterrupted

supply of power. Without these, factories will not be able to break even. At the same

time, as land gets transferred from agriculture to industry, efforts should be made to

maintain adequate supply of food and raw materials through productivity increase in

agriculture.

There is another important aspect of the problem. Every economic reform produces

winners and losers. An overall improvement in social welfare can never be achieved

unless the gains from the reforms are shared by everybody. Social welfare does not

depend on growth of production or national income alone. Unless people at large benefit

from such growth, even if a section of the population may become better off, the society

as whole becomes poorer. As land gets transferred from agriculture to industry, many

people (like share croppers and landless workers) will lose their livelihood. It would be

morally reprehensible to drive a Nano or a Cadillac on the dirt roads wet with the tears of

the dispossessed. Economic rehabilitation of these displaced workers remains the first

priority of any responsible government.

But a policy of tying up land in agriculture in pursuit of self-sufficiency in food is an

archaic policy in this day and age of globalization. There are those who oppose

globalization. But to paraphrase a fellow economist15, globalization is like gravity. You

cannot be for or against gravity. A wise man decides how to cope with the force of

gravity if he wants to get off the ground.

15 Kaushik Basu in a lecture delivered at Jadavpur University.

30

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1-13.

Ding, C. (2003) “Land policy reform in China: assessment and prospects”; Land Use

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Ho, P. (2001) “Who owns China’s Land? Policies, Property Rights and Deliberate

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Lewis, W. Arthur (1954). “Economic Development with Unlimited Supplies of Labor,”

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